One of the promises of living in America is the notion that enterprise is available to everyone. We all have the freedom to choose to be entrepreneurs: to see if our own skills, fortitude and ideas can sustain our lives in a level marketplace. There are plenty of people with either an idea and the grind-it-out work ethic to become a small business owner. Unfortunately, a lack of understanding how to begin a business keeps many people from taking the steps to bet on themselves and their passion. Funnily enough knowing the appropriate steps to take should be the easiest part to pin down because so many other companies have successfully charted the path from idea to fully formed business. With that in mind, here are some basic first steps to take when you are considering starting a business.
Before you do anything else, you need to make sure that you refine your idea as fully as possible. The groundwork to beginning your business is pivotal and it’s in this refinement stage that you’ll determine whether your concept is worth the follow through. Look at existing companies you hope to compete with–are you providing a service that is redundant, or do you have something different that will allow you to compete with them (and remember they already have a foothold in the market). Most importantly as you refine your idea you need to know why.
Specifically you need to know both the personal “why”, and the marketplace “why”. The personal “why” is relevant because it can determine how invested you are in the company and what level of work you’re actually willing to commit to it. The marketplace “why” is even more important because it’s how you will convince investors of your merit and value. Finally once you’ve refined all those concepts, try to determine your idea value. It may seem like an obvious part of the process but make sure you take a hard and honest look at whether or not you have a customer base, whether or not they need you, and why anyone would want to buy your service or product. If you don’t have solidified answers to these questions, it’s a red flag.
Once you’ve refined your idea and feel confident that you can compete in the market, your next step is to write out a business plan. The two most pivotal parts of this process; conducting market research and developing an exit strategy. Market research seems like common sense for most entrepreneurs. Begin with running surveys and if possible holding focus groups. If you’re planning to serve a local community, focus these surveys around local problems you intend to meet: the more specific an understanding you have of the needs of your neighbors, the better off you are to meet their demands. Assessing public data and SEO information could be useful at this stage as well. Developing an exit strategy seems counterintuitive so early on to many entrepreneurs but it’s pivotal to have a clear sense of when it’s time to leave the business. Think of it this way, in most walks of life the exit signs are always glowing, and business should be no different. Failing to develop exit strategies can result in diminishing value of the business in the long term and could be a source of tension in partnerships especially those that are familial.
Finally be sure to assess your finances as you begin to develop a sense of the business you want to create. A break even analysis is a simple tool for determining roughly when your company will be profitable. The formula is: fixed cost/(average price-variable cost)= Break Even Point. This formula will help you determine aspects like profitability and price of product. A simple reminder for yourself when starting with your finances is don’t overspend. If you’re a company of two to start, you don’t need to lease a building that houses 10 people. Be intelligent, be thrifty, and be aware of who you are as a company in the present, not who you want to be in the future. Finally the bank you choose is pivotal. Smaller local banks have a better sense of your communities economics and are more willing to work with you on loans or trust your personal credit. For larger banks your business will be fairly anonymous within their system. Develop a sense of the relationship you want with your bank before you choose between local and national.